Titan looks for a stronger 2H18 performance

This week, Titan Cement Group announced its 1H18 results, which were hit by the strengthening euro against foreign currencies. Turnover fell by 7.9 per cent YoY to EUR712.5m in the first six months of 2018 from EUR773.8m in 1H17 while EBITDA declined from EUR142.1m in 1H17 to EUR122.2m in 1H18. Despite this, the group recorded significantly higher net profits than in 1H17 at EUR24.8m (1H17:EUR13.9m).

Looking ahead, the Greek multinational is counting on improved weather in the USA and fewer maintenance shutdowns to deliver a stronger 2H18 performance. Below, we highlight some of the main challenges and opportunities for the group.

US outlookIn the US, Titan reported positive demand trends and higher prices, but saw this market held back by unusually wet weather. Going forward, conditions are set to improve: "In the US, the outlook for the construction sector remains favourable, with demand expected to increase in the second half of 2018, weather permitting, as well as in the medium term," said Titan Group's statement. "Titan is well-placed to make the most of the market’s momentum, having a strong presence in expanding metropolitan areas and spare capacity to meet growing demand. Moreover, the recently legislated tax reform should also have a beneficial effect on construction."

Greece – continued reliance on exportsThe conditions in Greece have been more challenging still as turnover declined in 1H18. Titan pointed towards infrastructure works having been concluded and a subdued housing sector reducing cement demand. However, building activity from the tourism sector showed an increase.

"In Greece, the commencement of new major works which would help reactivate the construction sector is facing delays while housing activity remains at extremely low levels. Once again, 2018 cement production will, by-and-large, be diverted to exports," said Titan.

Performance was stronger in southeastern Europe after a slow start with inclement weather. Titan reported that growth in the eastern and northern markets counterbalanced the decline in demand in the southern and southwestern Balkans.

"In the countries of southeastern Europe there are expectations for a longer-term, mild increase in construction activity. Τhe Group’s plants are operating below capacity and thanks to recent investments have increased their competitiveness through the expansion of alternative fuel usage, to their own benefit as well as to that of local communities," Titan added.

Egypt's additional capacity is likely to affect pricesTitan faces more competition in Egypt despite cement prices rising at the beginning of the year. New capacity coming on-stream is expected to see an increase of cement volumes available.

"In Egypt, while the sector benefitted from the stability in demand and the increase in prices in the 1H18, it is now called upon to address new challenges," said Titan. "The entry into operation of the new 12Mta Army-owned cement plant adds to the already excess supply, thereby further squeezing the utilisation rates and operating margins of existing plants. Moreover, the significant increases in energy costs and additional levies imposed on the production of cement, as of 1 July, make price increases imperative in order to recoup costs. However, current market conditions will likely make such increases challenging to achieve in the short term," said Titan.

Turkish and Brazilian subsidiariesThe Turkish market has also been problematic for Titan. "In Turkey, the unfavourable evolution of macroeconomic indicators (inflation, interest rates, foreign exchange rates) coupled with the pressures on the banking system are expected to have a severe effect on the construction sector and Adocim's performance, which is well prepared to face these challenges effectively,” commented Titan.

Optimism for Apodi Cement comes after the subsidiary has seen its results improve YoY, despite the national Brazilian truckers’ strike in May. “In Brazil, the positive development of the economy is raising expectations for the establishment of a new growth cycle in the cement market,” Titan reported.